(Photo: Aniruddha Chowdhury/Mint)
(Photo: Aniruddha Chowdhury/Mint)

Tata Motors springs a decent March quarter, but domestic revival crucial

  • A key concern for the market, that competitive pressures might push back on vehicle pricing, has been allayed
  • Cost-control measures and improvement in volumes sequentially have aided Ebitda margin in Q4

MUMBAI : Tata Motors Ltd has been having one of its toughest years in recent history, with sales of its UK unit, Jaguar Land Rover (JLR), going downhill. In this backdrop, expectations have been running low for the company’s fourth quarter (Q4) results.

But the good news is that the numbers have come close to what the Street had estimated, thanks to a steady performance from JLR. As it turns out, Tata Motors’ American depositary receipts listed on the New York Stock Exchange were up 5.5% at the time of writing.

Overall, the company’ consolidated revenue of 86,422 crore in Q4 was higher than the Street’s 85,165 crore, according to Bloomberg estimates. While consolidated volume growth has been marginally lower in Q4, down 3.8% year-on-year at 357,218 units, it has nevertheless been well accepted by the Street.

A key concern for the market, that competitive pressures might push back on pricing of vehicles, has been allayed. Cost-control measures and improvement in volumes sequentially have aided Ebitda (earnings before interest, tax, depreciation and amortization) margin in Q4. Ebitda stood at 9.7%. While this may seem lower than the margin picture a year ago, investors seem to have taken the numbers in their stride. A number of analysts had factored in lower margins in Q4. Note that Ebitda margin in Q3 stood at 7.9%.

This increase in margins was aided by the return to profitability of JLR in Q4. Recall that in Q3, the UK subsidiary took a huge impairment hit on technology obsolescence that impacted profitability. This quarter, its profit before tax came in at £269 million. For JLR, China continues to be a worry. Surprisingly, volume growth has been robust in its key markets of the UK and US.

“As long as there is no Brexit related major issue, which we cannot predict, Tata Motors should be able to sustain JLR performance this year. China is still an issue for them. But the rest of the markets are doing well, and so is their turnaround programme," said Jigar Shah, chief executive of Maybank Kim Eng Securities India Pvt. Ltd.

The domestic story is not expected to change much in the first half due to the general slowdown. While Tata Motors’ domestic volume growth in Q4 stood at 193,000 units, down 3.8% year-on- year, there has been a healthy improvement in Ebitda margin to 7%. If some of the domestic sales sheen comes back, it could add the gloss to JLR’s steady performance in the coming quarters.

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